Today, with the standard passed, says Brod, "we [still] don't think this is a better solution." Although FASB renamed such changes "retrospective applications," Brod worries that they still look like restatements, which tend to alarm investors. "There's always this notion that something is wrong. It adds an element of confusion," he says.

Despite the complaint, Brod says FEI's reporting committee is broadly supportive of convergence. His own company operates in 175 countries, and despite Europe's move to IFRS this year, he says, tax authorities in the 20 European Union member countries where Dow operates still require local GAAP as a starting point. "At the current time, it just adds another set of books," he says. "If our accounts in all 175 countries had to keep track of only GAAP and IFRS," notes Brod, "that would be a plus in the long run."

Also, he says, companies represented on FEI's committee "compete against organizations all over the world. To put [corporate accounting] on a comparable basis worldwide allows investors to make global decisions." Brod, who sits on FASB's Emerging Issues Task Force as FEI's representative, recently joined the IASB's advisory panel as well.

Convergence as Cudgel?
Being a front-and-center participant gives Brod and FEI a better opportunity to anticipate, and influence, the course of convergence. And such influence may be more necessary than it once was. Convergence helps each board pursue unpopular standards, as each conceivably can serve as a stalking horse for the other. Herz and Tweedie wave away the notion that they deliberately use each other this way, but the boards' joined — if not joint — efforts clearly give them more capacity to overcome opposition.

A vivid case in point: the rule FASB adopted in December 2004 requiring stock-option expensing, which Bielstein cites as "one good example of where we followed the IASB's lead."

In 1995, Congress threatened FASB with extinction if it pursued expensing. This time, much of Corporate America's initial ire was expended on Tweedie. That may have smoothed the path for incoming chairman Herz, who, as it happens, was still a member of the IASB when American companies first began warning Tweedie not to pursue stock-option expensing.

Although Herz was later grilled repeatedly by Congress, the debate early on had a sense of inevitability, with many opponents shifting their focus from outright opposition to lobbying for pricing models that would minimize income-statement effects.

"Certainly international convergence was a factor" in passing stock-option expensing, says Grant Thornton's Nusbaum, though other factors, notably the various accounting scandals, also made passage more likely.

How much might such a tactic help in the future, as the boards tackle such thorny issues as leasing or pension accounting? FASB's current leasing and pension accounting standards reflect compromises made years ago to minimize the impact on reported results. "Clearly, the IASB would go in a different direction on both defined-benefit plans and lease accounting than what we have in the U.S.," observes Nusbaum. In fact, the IASB already has an active research project on leasing, and may take the lead on developing the initial proposal. Its research to date — recently endorsed by the SEC — suggests that a likely outcome is to require capitalizing most leases. "Frankly, that's the way I think it is going to go," says Tweedie. If he's right (chairman or not, Tweedie is just one vote on the IASB), that would significantly increase the assets and liabilities of companies such as retailers, which currently keep large amounts of leasing activity off their balance sheets.

New pension accounting, by contrast, will be developed initially by FASB, which formally added a two-phase project on postretirement benefits to its agenda as CFO went to press. But U.S. companies should still pay attention to Tweedie and his colleagues in the coming debate. As chairman of the UK's accounting standards board, Tweedie oversaw adoption of virtually unsmoothed pension reporting, with annual changes in pension surpluses and deficits reported in other comprehensive income. The initial phase of FASB's project does not propose such a step. (It proposes that a company balance sheet show the difference between the fair value of pension assets and the company's estimated future obligations.) The second phase, however, will likely be developed in concert with the IASB. Observers predict that phase will likely eliminate smoothing, or restrict it to the actuarial calculations of a company's obligations.

All this might suggest that, far from moving standards toward U.S. GAAP, convergence is favoring standards developed overseas. Both Herz and Tweedie would dispute that conclusion, arguing that their boards are simply moving toward better accounting standards, regardless of origin. "When you see an area where the accounting is not very good," observes Herz, "it usually turns out that's where problems develop — including public-policy problems." He points out that FASB presciently acknowledged the shortcomings of both pension smoothing and footnote disclosure of stock options when it wrote the original standards. What convergence appears to be doing, then, is loosening the political constraints under which FASB has historically labored.

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